Aug 18 (Reuters) - Gold prices slipped on Tuesday after two straight sessions of gains as oil prices jumped on prospects for the Middle East crisis being protracted, fanning inflation and driving a rally in U.S. Treasury yields.
Spot gold eased 0.5% to $4,391.77 per ounce by 0915 GMT, while U.S. gold futures for December delivery dropped 0.6% to $4,447.30 per ounce.
"Gold is correcting on a combination of traditional headwinds coupled with some profit-taking after strong gains," said independent analyst Ross Norman.
A protracted Middle East crisis would feed into higher inflation possibilities and by extension, a firmer dollar and Treasury yields, Norman said.
Oil prices extended gains to their highest in more than two weeks, while a selloff in U.S. government bonds picked up pace, sending the 30-year Treasury yield to a near two-decade high.
CHANGE IN RATE EXPECTATIONS
Iran said it would shift to a "fully offensive" military posture following a breakdown in efforts to negotiate a permanent end to the war with the United States, while Washington ruled out extending a temporary ceasefire agreement.
Elevated energy prices tend to raise inflationary fears and bolster expectations of higher interest rates. While gold is typically seen as a hedge against economic uncertainty, higher interest rates tend to diminish bullion's appeal.
Gold prices hit their highest since June 5 last week after market pricing for a September Fed hike flipped to a nearly 66% chance of a "hold" after unexpected U.S. job losses in July, lower-than-expected consumer price inflation and weaker retail sales.
"While it is too early to suggest we are seeing a resumption of the bull market just yet, there are certainly encouraging signs for bulls," Norman said, adding that he expects the structural bull run which commenced in 2022 to be resumed once oil supplies improve.
Investors now await minutes of the Fed's most recent policy meeting, with the release scheduled for Wednesday for guidance on the interest rate path.
Among other metals, spot silver slipped 1.3% to $64.94 per ounce, platinum lost 1.5% to $1,742.70 per ounce and palladium dipped 1.5% to $1,313.96.
Reporting by Dharna Bafna and Swati Verma in Bengaluru; Editing by David Holmes
